Mercury General falls to $127 million operating loss on $414 million 'one event' net wildfire loss

By David Bull May 6 - (The Insurer) - Mercury General has reported a first quarter operating loss of $127 million that includes net cat losses and loss adjustment expenses of $414 million from January’s Southern California wildfires, with $331 million incurred by the company and $83 million for its share of FAIR Plan losses. The total also included a reduction for $25 million of recoupable assessment. Excluding the FAIR Plan losses, the carrier’s current estimate of gross cat losses and LAE from the devastating wildfires is around $2.15 billion, before reinsurance and estimated subrogation recoveries. The company said it has offset around $525 million of estimated subrogation recovery against its gross losses and ceded approximately $1.29 billion of the impact to its reinsurers. It sent an initial billing amounting to $606 million to its reinsurers in January 2025 and collected 100% on that. Last month it sent a second billing amounting to $224 million to its reinsurers, and has collected $136 million on that as of the start of this month. In its earnings release, Mercury General said that it has treated the Palisades and Eaton fires as one event for reinsurers for the three months ended March 31, 2025. The carrier added that despite recording the fires as one event for reinsurance purposes it retains the ability to consider them as two separate events. It had previously said it had not yet determined whether it would treat the wildfires as one event or two. The insurer’s catastrophe reinsurance program provides around $1.29 billion of limits on a per occurrence basis after its $150 million retention, with a $101 million reinstatement premium if the cover is exhausted. Mercury General said that with the single event exhausting the full limits, limits totaling $1.238 billion have been reinstated. It also disclosed that the available limit for the wildfires was reduced by $6.5 million for ineligible parametric coverage, adding that it used $10 million from a separate property excess of loss treaty. ACTIVELY PURSUING SUBROGATION The company added that it is “actively pursuing” subrogation against Southern California Edison on the Eaton fire. It said that it has been approached by brokers, banks and hedge funds with offers to purchase its subrogation rights but has not determined whether to do so. “Although SCE has not admitted that its equipment caused the Eaton fire, significant evidence indicates that SCE’s equipment was the cause of the Eaton fire. “Based on the history of settlement payouts on prior wildfires by SCE and other utility companies in similar situations where the utility equipment caused the wildfires and such companies settled the subrogation claims without admitting fault, the company believes $525 million is a reasonable estimate of probable recovery on the Eaton fire,” said Mercury General. The insurer said it believes SCE “has the wherewithal” to settle subrogation claims in a similar range to those seen on recent past wildfires, adding that the utility has access to the California Wildfire Fund, which provides additional funding to reimburse member utilities to pay wildfire claims. The wildfire losses update dominated commentary in Mercury General’s earnings release. Its financials included a combined ratio that increased by 18.3 points to 119.2%, driven by the net wildfire losses. It recorded a 10 points increase in net premiums earned to $1.28 billion, with net premiums written up 2.3% to $1.31 billion. Its $126.8 million operating loss compared to an operating profit of $43.3 million in Q1 2024. Net income of $73.5 million in the prior-year period turned into a $108.3 million net loss in the current reporting period.